Sunday, 12 October 2014

Last week, as the Tory faithful cheered on George Osborne’s new cuts in benefits for the working-age poor, a little story appeared that blew a big hole in the welfare debate. Tucked away in the Guardian last Wednesday, an article revealed that the British government had since 2007 handed Disney almost £170m to make films here. Last year alone the Californian giant took £50m in tax credits. By way of comparison, in April the government will scrap a £347m crisis fund that provides emergency cash for families on the verge of homelessness or starvation.

The first analysis of accounts for the Disney movies made in the UK reveals that since the scheme was introduced in 2007 the company has benefited from HMRC to the tune of £167.6m. Last year the tax credits reached a high of £50.1m, believed to be the largest ever payment to a studio. A third of that was awarded to the blockbuster Thor: The Dark World, which was filmed at Pinewood Studios in Buckinghamshire.

To qualify for the tax relief, 70% of a film’s labour costs must be paid to European workers and at least 25% of the production costs spent in the UK.

So, Thor: The Dark World received £16m of tax credits. According to Box Office Mojo, that film cost $170m to make (or around £105m). Most of that cost goes on staff - the writers, actors, crew and CG artists. So, around £73.5m gets spent in Europe for £16m of tax credits (and in reality, if you're in Pinewood, most of that will be going to the UK). If you work out the taxes spent on that £73.5m, it's probably about break even, or even a money earner.

Jonathan Isaby, chief executive of the Taxpayers’ Alliance, said: “Fiddly little favours for special interests are why we have such a terribly complicated tax system and it’s why ordinary taxpayers no longer trust that everyone is paying their fair share. Exemptions and reliefs like this should be scrapped altogether, and we should then cut the rates for everyone to attract investment and boost growth. It’s not up to politicians to pick winners through the tax system, so radical reform is a must for the next government.”

This isn't "picking winners". The government knows what the budgets of these films are, what the subsidy costs and what extra taxes and jobs you'll bring here. That's pretty much known. And these exemptions and reliefs exist not because we have a complicated tax system, but because we have the wrong tax system, based on incomes rather than land (and the TPA are against council tax, so I think we can assume all land taxes).

Income tax takes no account of the flexibility of labour demands in a globalised world. It's a rather unbusinesslike and anti-free market way of taxing people. Any normal business understands that you have market segments.

Take moviegoing. People have different reasons for going. Some people go to have a pleasant evening with a date. Some people just go to see a movie. The first group aren't just going to see a movie in a better format. It's about an evening out. They can't really replace it with watching on Blu-Ray. The second group can. Plus, lots of people want the Saturday night tickets. Cinemas therefore price differently. They can charge up to the rate that fills an auditorium on Saturday, but on Tuesday, they don't fill auditoria, so charge people a bit more than a HD rental, the alternative they're competing with, and get some people in. Not a huge amount of people, but it's still money and better than empty seats.

The fixes governments do of handing out tax breaks are simply a crude attempt to deal with that flaw in income tax. It doesn't discriminate between a film company making films about jousting that can do it in a huge number of places, and therefore can pick the one that has the cheapest costs (and tax is a factor in costs), and a cafe owner outside Windsor Castle that can't.

But LVT deals with the problem without any further tweaks for particular industries. The sort of businesses that can put themselves in any country are also generally businesses that can put themselves anywhere within that country (e.g. Pinewood have opened a new facility in South Wales). By introducing it, you don't need exceptions for certain industries. Flexible industries will come here, use cheaper areas of the country and create jobs. OK, they won't pay as much tax as the Windsor Castle cafe owner per head, but it's better to get a job with someone paying some tax than a business going to China and having lots of people on the dole.

And if you want a moral perspective, who has got more from the state? If the state had left Windsor Castle as a wreck after it caught fire rather than spending £37m repairing it, how much money would a cafe outside of it earn? So, why shouldn't that cafe owner, who gets a large amount of the benefit from that huge amount of money pay a larger share of paying for it?

The finances of film distibution are pretty complicated and are covered in the OECD's document "Competition and film distribution 1996." (on Net) How much a film makes and whether it gets made in the first place is dependent on the ties between the production company and the cinemas chains; how much the big chains are favoured because they can book first run films for longer even "zoning"i.e.certain companies won't allow the same film to be shown at the same time in cinemas within so many miles of each other.A proponent of free trade should n't go near this market which is so stitched up even a RPM proponent would blench.

TS, agreed, but it appears that film production companies are so daft that when they are deciding where to film, they look at what credits they will get first, rather than costs or indeed how much tax they have to pay (PAYE, VAT, etc).

Or presumably the clever businesses (Disney) do all that, but the politicians are so stupid they assume they don't.

DBC, actually it's even more complicated than that, suffice to say, there are no hard and fast rules and nobody really understands it.

DBC,not sure how much of that is still the case. It used to be that you have a strong link between cinemas and film making, but it's more the case that they're separate. The cinema business is really a popcorn and soft drinks business - most of the money from exhibition of big movies goes to the film companies.

Mark,I don't know. I'd like to think people have spreadsheets with at least a few factors in them. But it's interesting that Roger Corman wrote a book on how to make money in cinema, because he'd never lost money on a film (basically, make films for teenagers with sex, horror and car chases).

@TS Yes, the answer for the film makers is to make films for kids and teenagers and to make all kinds of weird distributional arrangements that favour the big chains who can do block bookings :(film starts off in Screen One then descends to Screen Two in the same building shedding audience as it goes).Meanwhile the small independent cinema or Arts cinema does n't get a look in with big first-run pictures.If anybody call for some subsidy arrangement by which interesting fims can be made about human beings rather than robots or heroes with superpowers ,the new post Thatcherite blithering class of right wing airheads pumped up with grade inflation all squeal in unison NO subsidies for Guardianista film goers : if a film cannot cut it in the free market it does not deserve to exist! Another triumph for the faux free market.

You're wrong. The Picturehouse and Curzon cinemas are showing Gone Girl, a major release at the moment. The Astoria in Chippenham has the Maze Runner. With digital transmission of films, there's no benefit to studios restricting supply, especially as they have no connection with the major multiplexes.

And why should filmmakers get subsidies? You can make a movie with a £1500 Canon digital camera and edit it on a £1000 PC.

@TSI can't see why I am wrong from the evidence you've adduced:that Gone Girl a film about adult relationships (and the recession)is being shown at the Curzon ,the most up-market cinema in London in my day, while the more prosaic Astoria in Chippenham is showing the usual teeny beeny film with fiction-of-the-future overtones and a cast list with an average age of 14.I can't see how the "digital revolution" is having much effect here on the distribution pattern ,in which respect consider Bayard's point in historical perspective. It was perfectly possible to record from a one-track tape recorder to vinyl as with "Earth Angel" (huge hit).But when John Lever in Northampton (see net)recorded his Apex band which included Ian Hunter (Patterson) , the record got no distribution. I do not think putting a local film ,made with £2,500 worth of equipment on at the village hall, constitutes a distribution network.When the "digital revolution" started, small non-chain cinemas could not afford the projectors which were prohibitively expensive . Some got them for free from a Guardianista type outfit that made it a condition that the cinemas showed a lot of European films (which wouldn't do very well in Chippenham I expect).There's no such thing as a free lunch: there's no such thing as a free market as Joe Chamberlin established 150 years ago.Film distribution has always been a carve-up. Vertical integration of studios with cinemas was legal in the UK (Rank etc); in the free market (but trust busting US) it was banned.